Construction scrap not arising from manufacture was treated as non-dutiable under the pre-Cenvat excise regime.

MS scrap consisting of leftover building or construction material, where no Modvat credit was availed and the scrap was not shown to arise from the manufacturing process or from capital goods used in manufacture, was not treated as dutiable waste or scrap under the pre-Cenvat regime. The Rajasthan HC accepted the uncontroverted plea that the material was construction leftover rather than manufacturing scrap, and therefore a duty demand could not be sustained on the assumption that all scrap is dutiable. The Revenue's challenge failed.

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Issues: Whether MS scrap generated from building or construction material, on which no Modvat credit had been availed and which did not arise from the manufacturing process, was liable to duty.

Analysis: The record showed a specific plea that the scrap in question consisted of leftover building material from construction activity and not of waste or scrap arising from capital goods used in manufacture. That plea was not controverted. On that footing, the scrap did not fall within the category of dutiable waste or scrap for which duty could be demanded under the pre-Cenvat regime, and the demand could not be sustained merely on the basis of the departmental assumption that all scrap was dutiable.

Conclusion: The scrap was held to be non-dutiable and the Revenue's challenge failed.

Ratio Decidendi: Scrap arising from construction material, where no Modvat credit was availed and it is not shown to have arisen from the manufacturing process or from capital goods used in manufacture, is not liable to central excise duty.

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